How do life insurance claims work?

Losing someone you love is one of the hardest things you can go through. The last thing you need is to have to worry about money.

April 1, 2021

This is why your loved one had a life insurance policy - to financially protect those around them after they are gone.

If the process of collecting your payout seems confusing, Dundas Life is here to help. In this post, we will show you how life insurance works in Canada, and help you collect on your policy, so that you can take care of your family during this trying time.

Here, we will answer several questions you may have, such as: What does life insurance do? How do life insurance payouts work?

What is life insurance?

Couple filling document online

Life insurance is an agreement between the insured and the insurance company. The insurer agrees to pay a death benefit amount to the person or people nominated as the beneficiary in the event of the insured’s death, as long as the policy is in effect at that time.

There are two types of life insurance — term life and permanent life. Term life insurance is simpler, cheaper, and sufficient for most people. It covers you for a certain period, like 10, 20, or 30 years. If you pass away during this period, your beneficiary will receive the payout. Term life insurance has only one purpose: to provide financial assistance to your loved ones after you are gone. It does not include an investment component.

Permanent life insurance, by contrast, provides coverage until your death and usually also includes a savings component. However, these benefits come at a price. Premiums for permanent life insurance are five to 10 times higher than a comparable term life policy.

Submission of proof of death of the person insured

If you are a beneficiary on a life insurance policy and the policyholder has passed away, you should start the claim proceedings. For that, you will need a certified copy of the policyholder’s death certificate. This is the standard document that all insurers ask for. To protect the insured and to protect against fraud, the insurance carrier will not issue you the death benefit amount without evidence of the insured’s death.

Your beneficiary status

Couple filling document online

Life insurance policies can go unclaimed if no one notifies the insurer about the insured’s death and files a claim. It is the family members’ responsibility to start the claim proceedings after the insured’s death; the insurance carrier will not make efforts to locate beneficiaries. In fact, in most cases, they will not even know the insured has passed away.

People often do not like to talk about their death or who will inherit money after they are gone. As a result, many times beneficiaries do not even know a policy exists. If you have taken out a life insurance policy, you must tell your beneficiaries about it.

If you think you might be due money from a life insurance policy, here are some tips to find out if a loved one had life insurance:

  • Look through bank chequebooks to see if any were used to make premium payments.
  • Look through the deceased’s papers.
  • Check the mail for one year to see if there are any premium notices.
  • If you locate a policy, call the insurer even if you do not know whether it is still active or not.

Payout options

It is up to the policy beneficiary how they want to receive the payout. The most common options available are as follows:

  • Lump-sum

This is the most popular payout option because it offers more flexibility and freedom. You get the entire death benefit amount as a lump sum and are free to use it as you like. You can use it to pay for everyday living expenses, cover the debt, or take care of future expenses - like college tuition fees.

  • Specific income

If you want, the insurer will release the death benefit amount in installments. You can decide for how long you would like to receive payments and the amount of each payment.  

  • Lifetime income

This option lets you convert the payout to an annuity. The insurer will make guaranteed payments until your death. The amount of each payment depends on three factors: death benefit amount, your gender, and your age at the time of the insured’s death.

  • Life income with a certain period

If you select this option, the insurer will make payments for life or over a certain period, whichever is longer. If you die before the period is up, the person or people designated by you as beneficiaries will get the remaining payments.

  • Interest income

You can keep the payout in an interest-bearing account with the insurer and, in turn, will receive interest payments for the rest of your life.

Filing a claim

So, how do life insurance payouts work?

It all starts with the beneficiary filing a claim, a simple and painless process involving the following steps.

  • Get in touch with the insurance carrier or agent

The first thing you should do is contact the insurance company or agent. They will explain what you need to do to file a claim.

  • Get copies of the death certificate

All life insurance claims require the submission of a certified copy of the death certificate of the insured. Speak to the funeral director to get certified copies.

  • Request claim forms

Generally, you will be able to download the claim form from the insurance carrier’s website. If forms are not available online, a company representative can help you obtain them. Next, fill in the form and provide all relevant information.

  • Decide how you want to be paid

Specify how you would like to receive the death benefit amount. In the event of multiple beneficiaries, each one may have to fill in a separate form and specify their payout preferences.

While life insurance payouts are not taxable — interest earned on them is. If you are not sure about which payout option to select, seek advice from your financial advisor first, since you may not be able to change it later.

  • Submit the claim forms

Send the completed paperwork with a certified copy of the death certificate to the insurer. Before you mail the documents, do not forget to double-check everything, because most payout delays occur due to some mistake on the claim form.

Now that you have done your part, you have to wait. The cheque may take anywhere between a few days to few weeks to reach you. If there’s a delay, follow up with the insurer to find out the problem.

Are life insurance benefits taxable?

One question we get asked often, will I have to pay tax on the life insurance proceeds I receive as a beneficiary?

Generally, life insurance payouts are not taxable when issued in a lump sum. This means if you receive the death benefit amount in one large payment, you will not have to pay tax on that amount.

However, any interest earned on a life insurance payout is taxable. So, if you receive the death benefit amount in small installments, you will likely have to pay tax.

How Quickly are Benefits Paid?

Insurance companies may take anywhere between a few days and a month to issue the policy proceeds to the beneficiary. Insurance carriers usually process a claim as quickly as possible because a delay can result in a heavy fine. Nevertheless, certain situations may slow the payout process. For instance, if a mistake is found in the claim form, the beneficiary may have to complete it again.

Also, in certain situations, the insurer may decide to investigate the circumstances around the insured’s death and delay or deny the claim.

Death during the contestability period. The contestability period usually lasts 2 years starting from the moment a life insurance policy goes into effect. If the policyholder dies during the contestability period, the insurer can review their medical records to make sure there has been no misrepresentation.

Death due to suicide. If the insured dies by suicide during the contestability period, the insurer may deny the claim.

Death by murder. If the cause of death is homicide, the carrier may delay issuing the payout until the investigation clears all beneficiaries of suspicion.

Death by high-risk activity. If the insured dies during a risky activity that they forgot to list in the insurance firm, the insurer may deny the claim.

Death during the course of illegal activity. The insurer will not pay the death benefit if the insured participated in illegal activity, like driving under the influence, which caused or contributed to their death.


When you pass away, life insurance replaces the financial support you provided to your family. Therefore, if you buy coverage, make sure your beneficiaries know about it so that they can get the money you have set aside for them. Collecting the payout is easier when beneficiaries have relevant details about the policy readily available. In most cases, insurers distribute the death benefit amount within one month of filing the claim.

Get a quote in just 5 minutes

How can we help you? Our team is happy to help answer any questions you have.

Get Instant Quote
dundas life insurance calculator on phone

Have specific insurance questions?

Call 905-367-0344 to speak with a licensed advisor who cares, or schedule a time below.
Book My Call

Sign up for our news and updates

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

By signing up for the newsletter, you are agreeing to our Terms of Service and Privacy Policy and opting into
receiving announcements and general marketing emails from Dundas Life.